UK House of Lords blockchain report highlights ISDA, DTCC and CLS

A report from the House of Lords detailing the potential benefits of distributed ledger technology (DLT) and blockchain has identified trailblazing examples from the financial services industry to show what lessons can be learnt.

The report released this week by Lord Holmes of Richmond, "Distributed Ledger Technologies for Public Good: leadership, collaboration and innovation", follows on from last year's UK government report by Sir Mark Walport, "Distributed Ledger Technology: Beyond Blockchain".

When exploring how the government could learn from industry experience, the report provides three examples of global industry DLT initiatives. These initiatives are managed by trade association, the International Swaps and Derivatives Association (ISDA), the post‐trade market infrastructure company Depository Trust & Clearing Corporation (DTCC), and the foreign exchange market clearing and settlement utility CLS.

In a confluence of events, at the same time this DLT report was being launched in the House of Lords, the DTCC European Client Forum 2017 was taking place in the City of London. On a DTCC fintech panel moderated by Robert Palatnick, managing director and chief technology architect at DTCC, the discussion delved into DLT with Dr Lee Braine of Barclays Investment Bank informing the audience: "While the DTCC's forum is here with its focus on balancing stability and innovation in global financial markets, at this same hour a new report from the House of Lords has been released highlighting ISDA, DTCC and CLS as positive examples in financial services where DLT initiatives could provide useful lessons learnt to potentially benefit government DLT initiatives."

The re-platforming of the DTCC's Trade Information Warehouse (TIW) includes building a new distributed ledger solution for derivatives post‐trade processing based on existing TIW capabilities and interfaces with technology providers and market participants. This has seen DTCC collaborating with IBM providing program management, Axoni providing distributed ledger infrastructure and smart contracts applications, and R3 acting as solution advisor.

The report also highlighted ISDA's Common Domain Model, which will provide a standard representation of data, events and actions that occur during the life of a derivatives trade. The intention is to provide a common foundation for derivatives applications on new technologies, including distributed ledgers and smart contracts. It involves collaborative work with banks, market infrastructures, fintechs, and others.

The third example was the new CLS bilateral payment netting solution called CLSNet, built in partnership with IBM using the Hyperledger Fabric distributed ledger platform.

The extent of collaboration taking place here – in some cases with network participants and technology providers who may otherwise be in competition – was a key factor, said the report.

Also noted were trade associations that can make full use of their broad base of existing members, as well as market infrastructure incumbents that can leverage existing governance policies and procedures and also accelerate network effects when actually rolling out solutions.

After the panel, Braine told IBTimes UK: "The report abstracts out some specifics from financial services in order to highlight lessons learned and potential benefits that are transferable.

"It helps greatly that, in the case of financial derivatives, we have trade associations such as ISDA for standards and also market infrastructures for accelerating deployment. The important role of standards bodies and service operators should not be underestimated in the technological world of distributed ledgers and decentralisated processing."